• Angus Crennan

Balmoral Fund 1Q18 Update

Our fund is doing well although markets have pulled back over the last 3 months which pulled our fund unit price back 4.8% from where it was at end December.

From inception to the end of March 2017 our fund has delivered gains of 7.36% which translates to an annualized return of 6.26% after fees.

Portfolio summary

We are collectively part-owners of 21 companies. Between end December 2017 and end March 2018 we sold our stakes in 4 businesses, re-purchased shares of Mattel and tactically traded a company called Fonar Corp:

  1. Prada – This position was sold given uncertainly about its future sales. We owned our stake in the company for around 12 months and over that time sales and profit margins have continued to degrade. The design side of the business continues to excite however that just does not seem to translate to increasing demand from their target market and corresponding sales. Management needs to be shaken up yet the founding family controls the company so I cannot know whether this will happen. Prada was a small position in the fund and we made a marginal amount from share price appreciation plus we collected modest dividends over our holding period so we made money on this investment.

  2. Howden Joinery – was sold for 12% capital gain over its ~4 months holding period plus a very small amount of dividend income. I have been watching our Great British investments closely given the uncertainty from Brexit and given the share price gains, our large exposure to British residential construction sector via Dunelm and the cyclical nature of this company, I was happy to let this small position go for this level of gains.

  3. Norcros – was sold for 16.3% capital gain plus we received around 4.3% dividend yield. Given our holding period of around 8 months this was a very good rate of return. The reasons for sale was full valuation and to concentrate our position in Dunelm as our exposure to British residential construction.

  4. Dexcom – was sold at a 16% loss. We first purchased this company in May 2017 and since then some very large and highly sophisticated competitors have begun competing for Dexcom’s blood glucose monitoring patients with some very effective products. Dexcom is still not profitable and with competition turning the industry into a technological ‘arms race’, which will likely demand increasing amounts of capital for product development with sales margins reflecting increasing competition, we exited at a loss. The JV with Google Life Sciences outcomes cannot be known and could amount to nothing and so does not justify remaining invested.

  5. Fonar Corp – does medical imaging and while its fundamentals look good medical investments are complex. I therefore treated the company as a tactical opportunity from which we took an 8% gain over a 22 day holding period.

Our portfolio of investments as at end March 2018 is below:

1. Villeroy & Boch – German super premium porcelain. 2. Inwido – Swedish window and door manufacturer 3. Hugo Boss – German corporate and smart casual clothier 4. Sartorius Stedim Biotech – French pharmaceutical and laboratory equipment supplier 5. Kroger – US retailer 6. Dunelm – UK home furnishing retailer 7. Go-Ahead Group – UK mass transport operator 8. Tractor Supply Group – US rural products retailer 9. Herman Miller – US furniture manufacturer 10. Van De Velde – Belgian lingerie 11. Knoll – US furniture manufacturer 12. H&M – Swedish fashion retailer 13. Borregaard ASA – Norwegian natural chemicals 14. Pandora – Danish jeweller and fashion accessories 15. Cheesecake Factory – US restaurants and confectionary 16. Gentex – US engineering group which manufactures automatic-dimming rear-view mirrors and driver assistance systems 17. Headlam Group – British flooring company 18. La-Z-Boy Incorporated – US furniture company 19. Snap-On Incorporated – US specialty tools company 20. Jeronimo Martins – Portuguese supermarkets 21. Mattel – US toy company

Didn’t we just sell Mattel?

Yes we previously owned Mattel and sold it last quarter. I have now repurchased Mattel around 16% cheaper than the price where we sold our last stake.

My thinking why is as follows: Since becoming CEO in January 2017 Margo Georgiadis seems to have stabilised the company – 2017 was the year she renewed the management team, articulated her strategy and stopped paying cash dividends to preserve cash. The first look we had of her vision being executed within a sales campaign were the 17 new female role model Barbies released for International Women’s Day on 8 March 2018. These new Barbies were an outstanding success and lauded on social media. It was a well-conceived and executed manufacturing and sales campaign which surprised and delighted its target market. I believe this toy titan now has a competent management team who understands its customer and provided they consistently do the basics right and re-engage with their core constituency commercial success will follow. I have taken a confident position sizing a little over 5% of our fund although that sleeve of our portfolio will be volatile for a while. Barbie has survived all comers as a mostly physical doll in an information age; reading into the new strategy I believe the intent is Barbie can be more – movies, apps and interactive games could all be new sources of revenue for the company. The values Barbie stands for can be seen in the recent new releases; empowered, intelligent females who contribute and lead, in short a brand parents trust their young daughters with.

Portfolio construction

As at end March our portfolio looks roughly as follows:

• 1% cash • 39% US companies • 42% European companies • 18% UK companies

The fund was well positioned for the market weakness early in the quarter with our cash level over 9%. That cash was invested as markets sold off and as at end March we were fully invested.


Two protective derivatives were used in early February given market volatility.

No leverage has been used in our fund and is not anticipated to be used in the near term.


If you would like to discuss anything about our Fund and our investments then please email me at investor@balmoralassetmanagement.com.au

Thank you for your continued support and I look forward to productive times ahead.

Regards Angus

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